Good Practices in Financial Planning –Part 1

Good Practices in Financial Planning –

Good practice related to Establishing and Defining the Relationship with the Client

Practice 1: Defining the scope of the engagement

The Scope of the engagement shall be mutually defined by the financial planning practitioner and the client prior to providing any financial planning service.

Prior to providing any financial planning service, a financial planning practitioner and the client should mutually define the scope of the engagement. The process of "mutually-defining" is essential in determining what activities may be necessary to proceed with the client engagement. This can be accomplished by

• Identifying the service(s) to be provided;
  
• Disclosing financial planning practitioner's compensation arrangement(s);
  
• Determining the client's and the financial planning practitioner's responsibilities;
  
• Establishing the duration of the engagement; and
  
• Providing any additional information necessary to define or limit the scope.
  

The scope of the engagement may include one or more financial planning subject areas. It is acceptable to mutually define engagements in which the scope is limited to specific activities. This serves to establish realistic expectations both for the client and the practitioner.

While you may not put scope of the engagement in writing, however it will be advisable to do so to avoid confusion at a later stage.

Good Practice Related to Gathering Client Data

Good Practice 2: Determining a client's personal and financial goals, needs and priorities

The financial planning practitioner and the client prior to making and /or implementing any recommendations shall mutually define a client's personal and financial goals, needs and priorities that are relevant to the scope of the engagement and the service(s) being provided.

Prior to making recommendations to a client, a financial planning practitioner and the client shall mutually define the client's personal and financial goals, needs and priorities. In order to arrive at such a definition, the practitioner will need to explore the client's values, attitudes, expectations, and time horizons as they affect the client's goals, needs, and priorities. The process of "mutually-defining" is essential in determining what activities may be necessary to proceed with the client engagement. Personal values and attitudes shape a client's goals and objectives must be consistent with the client's values and attitudes in order for the client to make the commitment necessary to accomplish them.

Goals and objectives provide focus, purpose, vision, and direction for the financial planning process. It is essential those objectives relative to the scope of the engagement are determined and that they are clear, precise, consistent, and measurable. The role of the practitioner is to facilitate the goal-setting process in order to clarify, with the client, goals and objectives, and, when appropriate, the practitioner must try to assist clients in recognizing the implications of unrealistic goals and objectives.

These practice standard addresses only the tasks of determining a client's personal and financial goals, and priorities; assessing a client's values, attitudes and expectations; and determining a client's time horizons. These areas are subjective and the practitioner's interpretation is limited by what the client reveals. A practitioner performing the activity of "gathering client data" should consider together the various good practices applicable to such activity.